White Paper: Fast Track Cost Reduction

Fast Track to savings with Freebenchmarking.com enabled process

Fast Track Cost Reduction has proven effective for OEM and EMS companies in reducing the cost of electronic components. It is based on combining Lytica’s statistically derived component target prices with quarterly negotiations to significantly improve a company’s spending competitiveness. The initial round of the negotiation cycle reduces costs in three ways.

It achieves price reductions on the worst price 25% of components by moving the majority of these component prices to appropriate market levels for your company

It finds and corrects pricing errors where you have been paying more than the negotiated prices due to system input or other errors, and

It identifies areas of coding duplication or multi location price discrepancies that can be eliminated.

Subsequent negotiation rounds bring the next worst 25% prices into market price alignment as part of a cycle of continuous cost reduction and spending competitiveness alignment.

It has been our experience that most companies need cost reduction but lack the tools and knowledge on component pricing to be truly effective. The majority of companies use management judgment to set blanket cost reduction targets that may or may not bear any relationship to component market realities. Their cost reduction targets are often a function of their end product market needs and may fall short of the component market potential.

This new and innovative approach works. We know this because our customers tell us it works. We consistently rate very high (4’s and 5’s out of 5) in our Freebenchmarking.com customer satisfaction surveys and have never received a claim against our money back guarantee. Freebenchmarking.com is enabled by our database of electronic component pricing. This database is made up from current pricing information provided by our clients using what they are actually spending on components. We use this information to form pricing distributions at the component and commodity levels that are used to characterize spending effectiveness and derive targets for poorly priced components.

The steps to Fast Track Cost Reduction are simple. They begin with a spending characterization and target price setting exercise provided by Freebenchmarking.com’s Gold Report. Negotiations using these targets yield immediate savings. Our customers tell us their success is for two reasons. The first is that we have identified the supplier’s higher margin components and, when challenged, suppliers adjust their pricing to be in line. The second is that their negotiators have more confidence in their negotiation position.

Mispriced components, identifiable through a separate Lytica report, require no negotiation to effect savings and identified duplications are usually addressable by making the supplier aware of the situation.

The Gold Report ROI is typically off the charts; with a single report investment clients have realized millions of dollars in savings. The lowest savings result reported to Lytica by a small company was 5 times the cost and we rated a 5 on their customer satisfaction score.

Fast Track Cost Reduction

Subsequent reports continue to yield saving as the next worst 25% components are targeted and alternate sourcing options are explored. The power of alternate sourcing is evident when the cost of unnecessarily single sourced devices is considered. Using the Freebenchmarking.com database and an analysis of target pricing by customer of single sourced and multi-sourced components, we discovered that companies are paying, on average, 10% more when they are single sourced. The Freebenchmarking.com Gold Report provides, in an Excel file, a list of drop-in replacement components for single sourced devices when alternatives are known. These suggested alternate devices are believed to be drop-in replacements because our customers are using them as drop-in replacements in their applications.

Fast Track Cost Reduction is a straight forward solution that works. We are so confident that it works we offer a money back guarantee if you don’t save more than the cost of the report. There is no risk! If you want to try before you buy, you can obtain a free BENCHMARK REPORT that will summarize the savings findings to be had with a Gold Report. For this you simply populate the upload template and follow the upload instructions on our website.

Find out what some of the world’s premier companies and your competitors already know – how to reduce costs using Freebenchmarking.com.